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2020 (8) TMI 273 - AT - Income TaxPenalty u/s 271(1) - Mandatory requirement of issuing a draft assessment order u/s 144C (1) by-passed - Validity of the draft assessment order - HELD THAT - As relying on Dipak Babaria 2015 (8) TMI 775 - SUPREME COURT we are of the considered opinion that by issuing the demand notice on 27.12.2018 itself the Assessing Officer has by passed all the mandatory sub-sections of section 144C A perusal of Section 144C of the Act shows that the Assessing Officer shall, at the first instance, forward a draft of the proposed order of assessment and on receiving such order, the assessee may approach the DRP by raising objections. If the assessee accepts the variation, then the Assessing Officer shall proceed by framing the final assessment order and if the objections are raised before the DRP, then, upon receipt of directions issued by the DRP, the assessee shall complete the assessment. However, we find that while framing the said draft assessment order, the Assessing Officer not only issued and served demand notice, but has also initiated the penalty proceedings. We have no hesitation to hold that the proceedings culminated on 27.12.2018 when the demand notice was issued and served upon the assessee along with penalty notice u/s 274 of the Act and, therefore, all the subsequent proceedings and orders become non est. The additional ground is, accordingly, allowed.
Issues Involved:
1. Treatment of AMP expenses as international transactions. 2. Substantive adjustment using AMP intensity approach. 3. Protective adjustment using Bright Line Test. 4. Protective adjustment using residual profits split method approach. 5. Corporate tax adjustments. 6. Validity of the draft assessment order dated 27.12.2018 under section 144C of the Act. Detailed Analysis: 1. Treatment of AMP Expenses as International Transactions: The assessee challenged the assessment order's treatment of Advertising, Marketing, and Promotion (AMP) expenses as international transactions. This issue revolves around whether AMP expenses should be considered as part of the international transactions between associated enterprises. However, the judgment did not delve into the specifics of this issue due to the resolution of the additional ground. 2. Substantive Adjustment Using AMP Intensity Approach: The assessee contested the substantive adjustment made using the AMP intensity approach. This approach measures the intensity of AMP expenses relative to sales and makes adjustments accordingly. The tribunal did not address this issue directly in the judgment due to the acceptance of the additional ground. 3. Protective Adjustment Using Bright Line Test: The assessee also challenged the protective adjustment using the Bright Line Test. This test compares the AMP expenses of the assessee with those of comparable companies to determine excess expenditure. The tribunal did not provide a detailed analysis of this issue as it became moot following the decision on the additional ground. 4. Protective Adjustment Using Residual Profits Split Method Approach: The assessee disputed the protective adjustment using the residual profits split method approach. This method allocates residual profits between associated enterprises based on their contributions. Similar to other issues, the tribunal did not delve into this due to the resolution of the additional ground. 5. Corporate Tax Adjustments: The assessee raised grounds related to corporate tax adjustments made by the Assessing Officer. These adjustments were not specifically analyzed in the judgment because the tribunal resolved the case based on the additional ground. 6. Validity of the Draft Assessment Order Dated 27.12.2018: The core issue addressed by the tribunal was the validity of the draft assessment order dated 27.12.2018. The assessee argued that the draft assessment order and subsequent orders were void ab initio as they contravened section 144C of the Act. The tribunal examined the provisions of section 144C, which require the Assessing Officer to forward a draft order to the assessee if there are variations in income or loss returned. The tribunal noted that the Assessing Officer issued and served a demand notice and initiated penalty proceedings on 27.12.2018, which concluded the assessment proceedings. The tribunal cited the Hon'ble High Court of Gujarat's decision in CIT Vs. Purshottam Das T Patel, which held that assessment is an integrated process involving both the assessment of total income and determination of tax. The tribunal concluded that the issuance of the demand notice on 27.12.2018 brought the proceedings to an end, making subsequent orders non est. The tribunal rejected the Revenue's argument that participation in subsequent proceedings by the assessee indicated acceptance of the draft assessment order. The tribunal emphasized that mandatory provisions of the Act must be followed, and bypassing these provisions renders the assessment invalid. The tribunal also referred to various judicial decisions, including those of the Hon'ble Supreme Court and High Courts, which supported the view that failure to follow mandatory procedures under section 144C invalidates the assessment. The tribunal held that the draft assessment order dated 27.12.2018 was final and concluded the proceedings, making all subsequent orders and proceedings non est. Consequently, the tribunal allowed the additional ground raised by the assessee and did not find it necessary to address the other grounds of appeal. Conclusion: The appeal of the assessee was allowed based on the additional ground challenging the validity of the draft assessment order dated 27.12.2018. The tribunal concluded that the issuance of the demand notice on that date concluded the assessment proceedings, rendering all subsequent orders and proceedings void. The other issues raised by the assessee were not addressed due to the resolution of the case on the additional ground.
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